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Monday, January 30, 2012

The Buffett Rule Won't Apply to Warren Buffett

Wall Street Journal, Will Buffett Avoid the Buffett Rule? The Sage of Omaha Is Already Positioned to Shield Most of His Rising Wealth From Such a Tax, by James Freeman:

Billionaire Berkshire Hathaway CEO Warren Buffett is once again thrilling the political class by volunteering other people to pay higher taxes. Long-time observers recall his opposition to former President George W. Bush's efforts to reduce the tax rate on dividends. Since Berkshire pays no dividends, Mr. Buffett had little at stake but enjoyed the opportunity to pose as if he were a rich guy eager to cough up more dough to Washington.

In the current debate, President Obama is pushing the "Buffett Rule" to ensure that high-income earners pay higher tax rates. But even if it's enacted, don't expect the Buffett Rule to have much impact on Mr. Buffett. By an amazing coincidence, the sage of Omaha is already positioned to shield most of his rising wealth from such a tax. ...

[T]he Buffett Rule ... at its heart is a way to raise taxes on dividends and capital gains. Berkshire still doesn't pay a dividend, and as for capital gains taxes, well, Mr. Buffett has already made clear that he'll largely avoid them by transferring his fortune to the Gates Foundation and to charitable trusts controlled by his family.

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Comments

I'm shocked SHOCKED!

Posted by: datechguy | Jan 30, 2012 8:47:18 AM

How much of Buffet's income is derived from helping other people shelter their income from taxes?

Seems like he might gain quite a bit of business if the "tax increases" were structured the right way, to force other rich folks into his particular line of investments.

Posted by: cirby | Jan 30, 2012 8:49:39 AM

What is funny is the "sage of Omaha" used to have a favorable reputation and was well respected. Now, not so much. This is just an example of what can happen when one takes a public stand on a political question. You are then held to the standard you propose. Ooops.

Posted by: Rick Caird | Jan 30, 2012 9:28:16 AM

It seems rather confusing to suggest that by either investing his money or giving it to charity, Warren Buffett is somehow avoiding the proposed Buffett rule. The Buffett Rule is supposed to apply to money you decide to accept as personal income, not to money you put into new investments or into charity. One of the main goals of progressive taxation in the first place is to discourage people making millions of dollars from simply pocketing it, but rather, to put it to uses that are to the common benefit, such as into charity, into new investments, or, if nothing else, toward helping the government raise revenue that it can put to productive use.

Whether government uses the money wisely or not is another discussion; the point is this is about money a multimillion$$-earning person does with their millions. You can oppose the goal of encouraging charitable donation or reinvestment instead of simply pocketing the money if you want, but it would not strike mas hypocritical of all of Buffet to just say "look, this isn't money I'm pocketing. No one's opposed to millionaires giving to charity or reinvesting their money."

Posted by: Dean Esmay | Jan 30, 2012 9:37:40 AM

And other wealthy people will avoid the estate tax by purchasing life insurance. Hey, Mr. Buffett sells insurance. Small world.

Posted by: Brad Lowe | Jan 30, 2012 9:47:56 AM

Typical.

Posted by: Dave | Jan 30, 2012 10:31:37 AM

Dean Esmay, what is this "pocketing" you mention several times? I think you must be mistaken: the very rich people we are discussing must certainly stuff it into their mattresses. No one has that many pockets.

Posted by: David H. | Jan 30, 2012 10:32:29 AM

The Buffet rule is designed to make other people shield their income from the government. When dividends are taxed at high rates, people shield them by placing them inside of Life Insurance. Some of Berkshire's major holdings are in the life insurance industry, long one of the most effective lobbying groups in Washington.

When the tax on dividends and capital gains was reduced in the 1980's, I imagine new policy creation at Mutual of Omaha decreased a good bit.

The easiest way to pay less income tax is to reduce your income - a very flexible quantity for the wealthy.

Posted by: T J Sawyer | Jan 30, 2012 10:53:13 AM

"One of the main goals of progressive taxation in the first place is to discourage people making millions of dollars from simply pocketing it, but rather, to put it to uses that are to the common benefit, such as into charity, into new investments, or, if nothing else, toward helping the government raise revenue that it can put to productive use."

That makes no sense. Who do you know who makes millions of dollars who just pockets it? It's not like rich people are like Scrooge McDuck with a cellar full of money bags sitting there. Either they invest it, or spend it. Even if they buy a gizzion square foot mansion, and have wild parties, they people who build mansions, and supply food and drink and staff parties have to eat also. It's not like someone spends their money on something that we consider wasteful and that money just disappears out of the economy.

Posted by: buzz | Jan 30, 2012 11:08:38 AM

Since when does society have the right to decide how I spend my money? If I earned it lawfully, and paid required lawful taxes, the rest is mine and nobody has the right to tell me how to use my personal property.

Just like nobody has the right to knock on you front door and demand shelter. We call that a crime. Why is money any different?

Posted by: Dr. K | Jan 30, 2012 11:09:24 AM

Buffet said that people should "pay their fair share". He didn't say that people should "give all their money to their brother-in-law".

Posted by: DensityDuck | Jan 30, 2012 11:17:04 AM

Rick,

"No one's opposed to millionaires giving to charity or reinvesting their money."

Yeah they are. That's why Buffet pays a lower rate and keeps saying he pays less taxes than his secretary - because he earns investment income. This is also why Romney's tax rate is so low and the left is attacking him for it. He gets investment income and donates a lot away so he gets the deduction. Someone deriving only wage income is already paying 35-50% on it when state taxes are included.

All of the class warfare talking points right now are going after these activities, investment and charitable donations.

Posted by: J | Jan 30, 2012 11:35:38 AM

I won't fault Mr. Buffet for avoiding capital gains tax by transferring equities to charity. I'm doing the same thing. I've got a bunch of tech stocks from 25 years ago that are nothing but capital gains anymore after all the splits. So I donate the stocks to my church.

As long as Mr. Buffet's transfer of funds to charitable trusts places the funds out of his control, with no financial benefit to him from the trust, there is no problem. He gets to use the tax laws the same as I do.

Posted by: Steve S. | Jan 30, 2012 11:54:49 AM

"It seems rather confusing to suggest that by either investing his money or giving it to charity"

A foundation is not necessarily a charity.

Posted by: memomachine | Jan 30, 2012 12:33:56 PM

if nothing else, toward helping the government raise revenue that it can put to productive use.

You just lost half the electorate right there - "productive use"? I'll choose to laugh at that because I don't want to cry right now (as it really deserves).

the point is this is about money a multimillion$$-earning person does with their millions.

How about "Whatever they want, since the millions in question are THEIRS! Radical idea, I know...

Posted by: Deoxy | Jan 30, 2012 1:08:00 PM

Dean: I don't believe anyone is calling Mr. Buffett a hypocrite here. I certainly am not. What I believe the article to be pointing out is that a proposed policy, nick-named for Mr. Buffett, the purpose of which is to remove a purported unfairness between the tax rates of Mr. Buffett and middle income Americans, will in fact do no such thing.

Posted by: Hal Duston | Jan 30, 2012 2:39:30 PM

Doesn't he also owe close to $1 billion in back taxes that he is fighting? Does that make him a double-hypocrite, or does that make him a Democrat? I forget which is the proper title.

Posted by: Diggs | Jan 30, 2012 3:18:39 PM

Putting ones millions or billions in charitable foundations and trusts is all well and good. I question whether that approach is intrinsically more valuable than investing in businesses that create jobs. Of course when Mr. Buffet's favorite executive has spent his term thus far discouraging and suppressing expansion of the private sector it may well be that there are not enough potential good investments left.

Posted by: Ed Nutter | Jan 30, 2012 4:13:24 PM

Socialism is much more rigged in favor of the super-rich than capitalism is.

Capitalism has continuous turnover between winners and losers.

Socialism builds a moat around the oligarchy, that a newcomer cannot cross.

Posted by: GK | Jan 31, 2012 1:17:38 AM

Why is someone who had a sterling reputation until age 75, now, at age 81, going out of his way to sully his reputation in the final years of his life?

Posted by: GK | Jan 31, 2012 1:18:34 AM

India, China, and Russia all have a 0% Long-term capital gains tax rate.

The US has little choice but to make rates competitive. The US is no longer such a large share of world market capitalization as before.

Capgains taxes have to be lowered asap. Increasing them would be ludicrous.

Posted by: GK | Jan 31, 2012 1:46:24 AM

So let me get this argument straight...Buffet is "shielding" his wealth from cap gains tax by giving it away to charity. How is that "shielding" his income? That's giving away his income. That's the opposite of shielding it. The author might as well argue something like "Before I go out into the freezing cold, I'm going to cut off my toes to shield them from getting gangrene." That makes about as much sense.

Posted by: a. nomus | Jan 31, 2012 9:11:50 AM

Isn't it funny how Buffet supports Obamas call to treat Buffet just like the rest of us, but all of Obamas actual actions and proposans benefit Buffet, at the expense of the rest of us. Buffet rule tax hikes, that Buffet will not actually pay, but his compeditors will, and they will have to put their cash into Buffet run life insurance to avoid those taxes. And killing the keystone pipeline, when Buffet owns the railroad that currently gets huge cargo fees that would disappear once the pipeline is built. Government of Warren Buffet, by Warren Buffet, and for Warren Buffet. Of course Obama does have some exceptions to just working for Buffet. He also takes care of Soros, the green Gore fatcats, academis, the affirmative action quotas benficiaries, and the public employee unions. It is only the rest of us that get screwed. I used to admire and respect capitalists like Buffet. But now that they no longer act like capitalists, and instead act like crony capitalists, to hell with them. The only capitalists I will admire now are those that want gov to stay as far away from them as possible, and instead make their money by new products, well run enterprises, and sound investments, not gov handouts and favoritism.

Posted by: richard40 | Jan 31, 2012 11:46:04 AM